Directors & Officers Liability Insurance (D&O)
Do I need to consider this cover in my capacity as a Director, Officer or if I have managerial responsibility at a company? The simple answer is Yes I Do!
The purpose of Directors & Officers Liability:
This type of liability insurance is effected to provide financial support and protection to directors and officers of a company for defence costs and legal liability incurred for claims and prosecutions against them for wrongful acts in their role in the company. This includes the representation costs in investigations of them by regulators and other authorities.
Directors and Officers are increasingly being held personally responsible for the management decisions made during every working day. Claims brought against individuals can threaten both the personal wealth of individual directors and officers and the financial viability of the company in question.
The personal liability of a Director and/or Officer of a Company is unlimited, whereas a Company’s liability is limited by shares or by guarantee. Traditionally only larger companies have purchased D&O Insurance, however the Directors , Officers and other people with managerial responsibility of any size company require the same protection, particularly as their responsibilities become more onerous from both increasing regulation and third party awareness of their duties.
When a claim or allegation of wrongdoing arises, a Director’s personal assets are at risk, and it is a common misconception that a Director can expect his or her company to provide indemnity. Only in limited circumstances are Companies obliged to indemnify their directors for wrongful acts. Even where a company can and does indemnify a director for a personal liability, a D&O policy can assist with reimbursing that companies losses.
What are wrongful acts?
A Wrongful Act means any actual or alleged:
- Breach of trust
- Breach of duty
- Neglect
- Error
- Misstatement or misleading statements
- Omission
- Wrongful trading
- or other act by the Directors, Officers or employees in their respective capacities as a Director, Officer or employee of the Company, or any matter claimed against them solely because of their status as a Director, Officer or employee of the Company.
Common D&O risk scenarios
- Employment practices & Human Resource issues
- Shareholder actions
- Financial or Other Reporting errors
- Inaccurate or inadequate disclosure (e.g. in company accounts)
- Misrepresentation in a prospectus
- Decisions exceeding the authority granted to a company officer
- Failure to comply with regulations or laws
Common D&O cover exclusions
- Fraud
- Intentional non-compliant acts
- Illegal remuneration or personal profit
- Property damage and bodily harm (except Corporate Manslaughter)
- Legal action already taken when the policy begins
- Claims made under a previous policy
- Claims covered by other insurance
Top Tip
A D&O policy is a ‘Claims Made’ policy which means that the policy in force at the time a claim is made / initiated is the policy which has to pay the claim, it is not the policy in force when the incident / wrongdoing occurred. Therefore it is essential that you renew your D&O policy each year without a gap in cover.
Remember : The Personal Liability of a Director and/or Officer of a Company is unlimited, whereas a Company’s liability is limited by shares or by guarantee. When a claim or allegation of wrongdoing arises, a Director’s/Officers personal assets are at risk, and it is a common misconception that a Director/Officer can expect his or her company to provide indemnity. This is where a D&O policy can assist.
